An accurate estimate about the degree of default associated with delinquent loans can be important to many different entities that participate in mortgage loans origination, holding, and servicing. For example, accurate estimates serve the interests of financial institutions that buy and sell mortgages and loan servicers that service mortgages during contractual terms. Prior to obtaining a mortgage loan to purchase a property, each borrower must meet certain standards that are established by the financial institution lending the mortgage loan. Thereafter, each borrower that meets those standards typically receives the mortgage loan to purchase the property in exchange for contractual obligations, such as obligations to repay the loan, on a timely basis, with interest, and within a predefined time period.
During the term of each mortgage loan, a loan servicer ensures that the mortgage loan is repaid per the contractual terms in exchange for a servicing fee from the holder of the mortgage loan. However, any number of situations may cause the borrower to become delinquent during the repayment term. If the borrower's delinquency lasts for a predefined period, for example three months, the loan servicer's ultimate remedy is foreclosure, wherein the borrower's credit history is damaged, the borrower loses the property, the holder of the mortgage loses the future interest income, and the loan servicer incurs expenses in the disposal of the property. Moreover, the holder of the loan is typically unable to recover the entire amount of the loan from the foreclosure sale.
Since all parties, i.e., the borrower, the holder of the mortgage loan and loan servicer typically want to avoid foreclosure, holders of mortgage loans have developed loan workout options as alternatives to foreclosure. The loan workout options enable delinquent borrowers to repay the loan based on revised terms, thereby benefiting both the borrower and the parties holding and servicing the mortgage loan. Current workout options include a repayment plan option, a loan modification option, a pre-foreclosure sale option, an assumption of mortgage option, and a deed in lieu of foreclosure option. The repayment plan option defines a schedule of how the borrower will repay all of the delinquent funds within a predetermined time. The loan modification option enables the loan servicer to modify the original terms of the loan. The pre-foreclosure sale option allows the borrower to sell the property, for less than the amount owed to the holder of the mortgage in satisfaction of the entire debt, before foreclosure proceedings are commenced. The assumption of mortgage option enables the borrower to transfer the liability of the mortgage loan contract to a new buyer of the property and the original borrower is typically released from the contractual terms. The deed in lieu of foreclosure option allows the property deed to be transferred to the holder of the mortgage in exchange for cancellation of the mortgage debt. In order to determine the best workout option for each borrower, a system is needed to evaluate various workout options and identify those options that are best suited to each borrower.